China Seeks Smog Cause

China is gradually shifting its economic growth model from investment to consumption, but the first effects seem to be more pollution rather than less.

Massive investment and trade-oriented growth have long been the engines of China's economic expansion, but official figures for 2012 suggest that consumption may be taking over the front seat.

On Jan. 18, the National Bureau of Statistics (NBS) announced that 51.8 percent of the country's gross domestic product (GDP) growth was due to consumption last year, surpassing the 50.4-percent share from capital investment, the official Xinhua news agency said.

Net exports had a negative effect of 2.2 percent on GDP growth, the NBS said. China recorded a 7.8 rise in GDP, its slowest pace since 1999.

The gain in consumption-led growth may have been partially the result of weakness in China's external markets, but officials have been eager to portray it as a significant change.

On Jan. 14, Minister of Commerce Chen Deming said consumption had taken the lead in the economy for the first time since 2001, the official English-language China Daily reported. In 2007, its share of GDP growth stood at less than 40 percent, he said.

China's government has embraced calls from Western economists to promote consumption-led growth as a way to rebalance the economy, in part because it would help narrow the gap between rich and poor.

But celebrations of progress may be clouded by the nation's air quality crisis, which has produced the worst smog in China's cities since they started reporting readings of fine soot particles last year.

Starting on Jan. 12, Beijing residents began suffering from a stagnant surge of trapped particulates known as PM2.5 with readings as high as 993 micrograms per cubic meter, nearly 40 times higher than acceptable limits established by the World Health Organization.

The dangerous concentrations darkened skies and set a record for the city, Bloomberg News reported, citing the Institute of Public Health and Environmental Affairs.

Heavy air pollution has continued through the month with only occasional breaks mostly in northern cities and effects reported in provinces as far south as Fujian.

Exhaust pollution

The link to the consumption-led economy is about more than China's reliance on high-polluting coal. China's new wave of consumption has created a flood of private cars, adding more sources of pollution with every year of growth.

Vehicle exhaust has replaced industrial pollution as the biggest source of smog in major cities, Fudan University professor Zhuang Guoshan said, according to China Daily.

Last year, auto sales rose by a relatively modest 4.3 percent, the China Association of Automobile Manufacturers reported. But that meant adding nearly 19.3 million new cars.

The crisis has already driven cities to clamp down on one of the major manifestations of the consumption-led economy with new emissions rules and threats to order cars off the streets.

Beijing is home to nearly 5.2 million vehicles, an increase of 2 million since 2008, state media reported.

On Jan. 22, the city announced plans to take 180,000 older vehicles off the roads in an effort to cut major air pollutants by 2 percent this year, Xinhua said.

New rules are designed to reduce auto emissions by 40 percent, the Beijing Environmental Protection Bureau said.

Other steps include reductions in coal use and replacement of coal-fired heating systems.

Slow transition

But the cutbacks may also raise questions about whether consumption is a cure-all for the country's economic growing pains.

In the early stages, the country may see relatively few environmental benefits from the shift to a consumption-led economy, said Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research.

"This is something that's a decade or two-decade-long process," said Herberg. "It's going to take them 10 or 20 years to really reshape the Chinese economy in a way that's going to reshape the energy consumption pattern."

In the meantime, China will still need a lot of investment to make the transition to consumption-led growth, he said.

New roads and housing will be required to continue the urbanization of an estimated 20 million rural residents annually.

Last year, China's cities added 17.6 million new residents, according to calculations based on NBS data. Over 52.5 percent of the population is now urban, the agency said.

Urbanization and housing are seen as keys to developing the consumer-based economy, but the early effects may be very similar to investment-led growth.

"To do all that urban development, you have to have steel, concrete, glass, chemicals, heavy industry, electricity—all the things that drive coal consumption," said Herberg.

Pollution pressures will only be eased with greater energy efficiency. Eventually, a consumption-led economy would become more energy efficient, but perhaps not on its own.

"Really, what leads you toward a less energy-intensive economy is a change to a more service-based economy," Herberg argued, citing examples in the United States and Europe.

In early 2012, U.S. carbon dioxide (CO2) emissions from energy use dropped to the lowest level in 20 years, the Department of Energy said.

In China, it may take another five or 10 years before the environmental benefits of economic changes are felt.

"I think there's a long way to go before the reshaping of the economy is going to fundamentally change the pollution intensity of the economic mix," Herberg said.